1 Telecom Heading to the Cloud

This Spanish company looks to the skies for sales.

The cloud computing commoditization countdown continues. Spanish telecom Telefonica Digital (NYSE:TEF) announced their newest "infrastructure-as-a-service" product on Tuesday, and the ripple effect could be felt throughout the tech world. Here's what you need to know.

Store it. All of it.They call it "Instant Servers," the ultimate offering that delivers on-demand, high performance cloud computing for developers, digital businesses, and large enterprises.

"Telefonica Digital seeks to meet the needs of thousands of businesses that require a cloud services platform that is easily scalable, with low latency and totally trustworthy, enabling them not only to rapidly respond to their own needs, but also to the expectations of their customers," said Carlos Morales, Cloud and M2M Director. "This can all be done with significant cost savings as customers only pay for the type of cloud services they require and the time they use them for. This offering completes our portfolio of services to meet our business customer needs."

The telecom is taking its offering seriously, guaranteeing financial compensation to any customer in the event of non-compliance. But according to the corporation's track record, non-compliance shouldn't be an issue. Telefonica enjoys a market-leading service level agreement of 99.996%. Compared to Amazon's (NASDAQ:AMZN) and Microsoft's (NASDAQ:MSFT) 99.5%, customers looking for ultimate reliability may find themselves tempted by Telefonica.

The company currently has data centers in London and Madrid, with plans to deploy additional data centers in Europe and Latin America.

Data here, data there, data everywhereThe launch symbolizes an important milestone for Telefonica, as it struggles to remain afloat on Europe's sinking economic ship. It recently cut its dividend entirely, and its stock price has dropped 50% in the past two years.

But Telefonica's entry might be just another step toward the end of cloud computing profits. The commoditization of data storage has been on a tear since the infamous days of Iomega's Zip Disk, and cloud computing is quickly becoming a crowded space. From Rackspace Hosting's (NYSE:RAX) commercial offerings to Dropbox and Google's (NASDAQ: GOOG) personal e-storage solutions, this sub-sector is becoming increasingly competitive.

Rackspace just hit analyst expectations for its third quarter, boosting sales by 27% and EPS by 36% compared to last year. But margins expanded just slightly, and Telefonica's entry will put the squeeze on these expansions in the years to come.

Deals on dataA horse is a horse is a horse, and data is data is data. At the end of the day, the companies that win the cloud computing battle are going to be those with the best offerings at the cheapest price.

Mega-corporations like Microsoft, Apple(NASDAQ:AAPL), and Google might back off from data storage, letting cloud-centric companies like Rackspace run their operations at minimal expense. Given Telefonica's quality track record, it, too, could have a shot if it can keep costs competitive.

Foolish bottom lineTelefonica has come out swinging into the cloud computing world, but there might not be much there to fight about. But whether analysts consider this "diworsification," or a carefully calculated strategic move, investors will need to keep an eye on Telefonica and cloud computing in general. The game is quickly changing, and Telefonica just put on its jersey.

Fool contributor Justin Loiseau owns shares of Apple and likes to look at clouds. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.